"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Thursday, March 25, 2010

Partial Setting Aside of Arbitral Awards

Thanks to Herbert Smith’s bulletin on arbitration, I came across a three month old decision of the Bombay High Court on arbitration which is a development worth noting. In RS Jiwani v. Ircon International, a full bench of the High Court of Bombay held that a court could partially set aside an arbitral award without nullifying the award in its entirety. The High Court overruled its previous decision on the point. Herbert Smith bulletin says that the “decision has been welcomed by practitioners in India and outside, in that it avoids the draconian outcome of losing the entire award if only part is defective” and the same “is a welcome demonstration of support for alternative dispute resolution by the Indian courts, and a boost for arbitration in the country.”

The main issue which the court had to decide on was whether court could set aside an award partially under Section 34 of the Act, notwithstanding the fact that the Act allows the court to do so expressly only with respect to Section 34(2)(iv) and not otherwise. The Full Bench held that a court could. On this issue the court overruled its previous decision in Pushpa P. Mulchandani v. Admiral Radhakrishnan Tahilani where the court had held that only under Section 34(2)(iv) could a valid portion of the arbitral award be severed from an invalid portion and in all other cases, where a part of the award is invalid, the entire award would fail. 

It may be noted that one of the prime justifications of the decision in Pushpa was that the Act did not contain a provision similar to Section 15 of the Arbitration Act, 1940 (1940 Act). Section 15 read:

15.Power of Court to modify award:-
The Court may by order modify or correct an award -
(a) where it appears that a part of the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred ; or
(b) where the award is imperfect in form, or contains any obvious error which can be amended without affecting such decision ; or
(c) where the award contains a clerical mistake or an error arising from an accidental slip or omission

A similar provision enabling the court to partially set aside an award is not found in the 1996 Act, except under Section 34(2)(iv). Hence, it was decided in Pushpa that the court did not have jurisdiction to partially set aside an arbitral award, except when under Section 34(2)(iv).

Pushpa was overruled by the Full Bench of the Bombay High Court on the following grounds:

  • There are seven grounds on the basis of which an arbitral award could be set aside. Out of these severability (of arbitral award) is permitted only under ground.However, it might be possible that even under the said six grounds, there is no need for the court to set aside the award in its entirety. For example, in an award, the tribunal might not have afforded an opportunity of hearing in respect of counter-claims but would have given the same with respect to the claims. Another example is a case where the arbitrator has, while allowing several claims of the Claimant, has also allowed a time-barred claim In such cases, it makes no sense to set aside the whole award.
  • The doctrine of severability is a concept that is recognised universally. It is applied in the realm of contracts (to enforce parts of contracts that are not invalid) and even to statutes. Hence there is no reason why severability should not be applicable to arbitral awards
  • Further, even the Act does not prohibit existence of the power of a court to partially set aside an award.
  • Once award attains finality and vests a legal right on one of the parties, it would be unjust to deny such a party the vested right on the grounds that other portions of the award are invalid.
  • When a party can challenge a part of the award while not challenging another part of the same, there is nothing to prevent a court from partially setting aside an award. 
Cornelis Carel et al, in their book titled "Law and reality: essays on national and international procedural law", note at p. 164 that in Austria, Belguim, France, Germany, Greece, The Netherlands, Spain and Switzerland a court could partially set aside an award.


surrender said...

Very well authored and reasonably useful;

Badrinath Srinivasan said...

surrender- thank you